TMI Blog2013 (2) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the sole and dominant nature of the activity is education and the Petitioner exists solely for the purposes of imparting education. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilized as the balance-sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C) on the requirement that a college must maintain the status-quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. The provisions of Section 10(23C) cannot be interpreted regressively to deny exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y financed by the Government are covered by the provisions of Section 10(23C)(iiiab). A certificate was issued to the Petitioner under Section 80(G)(5) on 4 September 2008. 3. Between 1985-86 and 2005-06, the Petitioner was allowed the benefit of the provisions of Section 11. For Assessment Year 2006-07 and 2007-08, the claim of exemption under Section 10(23C)(iiiab) was allowed. For Assessment Year 2006-07 that claim was allowed in pursuance of an order under Section 143(3) whereas, for Assessment Year 2007-08, an intimation was issued under Section 143(i) accepting the claim of exemption under Section 10(23C)(iiiab). For Assessment Year 2008-09, the benefit of Section 10(23C)(iiiab) was denied to the Petitioner though, admittedly the benefit of Section 11 was granted. The assessing officer has held that in order to be an institution substantially funded by government, the institution must receive at least 75% of its receipts from government grants. Reliance for this inference has been placed on the provisions of the Comptroller and Auditor General (Duties, Powers and conditions of Service) Act, 1971. The Petitioner is in Appeal for Assessment Year 2008-09 before the C.I.T. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the conclusion as he has that the benefit of the exemption under Clause (iiiab) is to be denied, the Petitioner would in that case be entitled in law to the benefit of the exemption under Clause (vi). The grievance of the Petitioner is that the Revenue has not taken a firm position since while on the one hand the Chief Commissioner of Income-tax took the view that the benefit of Clause (vi) of Section 10(23C) could not be availed of on the ground that the Petitioner is in receipt of substantial grants from the State Government (thereby implying that the Petitioner would be governed by the provisions of Clause (iiiab)), yet an inconsistent stand is sought to be taken by the Assessing Officer. Hence it has been urged that as a result of a palpably inconsistent line of reasoning adopted by two arms of the revenue, the assessee is left without a remedy but to move these proceedings under Article 226 of the Constitution of India. 5. In order to appreciate the nature of the controversy, a reference to the statutory provisions having a bearing on the Petition would be in order. Section 10 enunciates categories of income which are not to be included in computing the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-clause (vi) for approval is required by the fourteenth proviso to Section 10(23C) to be filed on or before 30 September of the relevant Assessment Year. 7. Now in this background, it will be necessary to consider the legality of the order that has been passed by the Chief Commissioner, denying the benefit of the exemption under sub- Clause (vi) of Section 10(23C). The first part of the order of the Chief Commissioner makes a reference to the fact that the Petitioner is an aided institution, being in receipt of financial aid from the State Government of Maharashtra towards salary grants. The Petitioner also receives financial assistance from the University Grants Commission (U.G.C.) for the purchase of library books, equipment and such other requirements. The Chief Commissioner noted that for Assessment Years 2008-09, 2009-10, 2010-11 and 2011-12, the percentage of grants received as a proportion of the expenditure incurred on the objects of the trust, was 56%, 63%, 52% and 58%. On this ground, the Chief Commissioner came to the conclusion that the Petitioner is in receipt of government grants which form a substantial part of the total receipts and consequently, the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely lead to the rejection of the exemption under Sub-clause (vi) but would also affect the claim of the Petitioner to the grant of an exemption under Sub-clause (iiiab) as well. 8. In view of the finding of the Chief Commissioner that the Petitioner does not exist solely for educational purposes and not for the purposes of profit, it becomes necessary for the Court to scrutinize the validity of that finding. The Chief Commissioner has held, in the course of his order, that the fees which were collected by the Petitioner as reflected in the income and expenditure account for the year ending on 31 March 2011 would indicate that the Petitioner did not exist solely for educational purposes. To support this finding, the Chief Commissioner has relied upon certain receipts which are part of the following table contained in the impugned order:- S.No. 1 Air Rifle shooting Rs.29,375/- 2 Extra curricular Activities Rs.5,12,37/- 3 Gymkhana fee Rs.4,09,855/- 4 Misc. Income Rs.1,67,852/- 5 Inter University sports cultural fees Rs.26,540/- 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. 10. Sub-clauses (iiab), (iiiad) and (iv) require that the institution must exist solely for educational purposes and not for profit. Existence comprehends the purpose, goal, object and mission of the institution. Where the purpose of the institution and the defining character of its mission is education, and education alone, the test is fulfilled. The fact that incidentally, a surplus has resulted in a year will not render such an institution as existing for profit. Existence is defined by the fundamental underlying purpose of its being, though the manner in which it has consistently carried on its activities may assume relevance. Institutions exist for what they are formed to pursue and if that pursuit is solely and exclusively education, the statutory norm is fulfilled. 11. While considering the provision of Section 10(22) of the Act, the Supreme Court in Aditanar Educational Institution v/s. Additional CIT (1997) 224 ITR 310 held that the decisive or acid test is whether on an overall view of the matter, the object is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the balance-sheet are excluded, the Petitioner has sustained a loss for every year except financial years 1989-90, 1990-91 and 1992- 93; (iii) if government grants are included as part of the income and only corpus donation and scholarship contribution being balance-sheet items are excluded, there would be a deficit save and except for financial years 1989-90, 1990-91, 1992-93, 2008-09 and 2010- 11. Between 1989-90 and 2010-11, the figures placed on the record on affidavit indicate the following position:- (i) Government grants Rs.13,46,75,326/- (ii) Fees from students and other receipts Rs.13,67,30,941/- (iii) Corpus donations and scholarship contributions Rs.5,43,64,221/- (iv) Expenditure on running the institution Rs.26,69,95,136/- (v) Expenditure on addition to fixed assets: Rs.2,45,33,331/- The statement which has been placed on record would indicate that if Government grants are excluded, the Petitioner has consistently had a deficit of expenditure over income since 1993-94. Receipts by way of Government grants have been excluded because tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilized as the balance-sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C) on the requirement that a college must maintain the status-quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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